To successfully complete government contracts, contractors must maintain regulatory compliance based on the standards of the Defense Contracting Audit Agency (DCAA). The DCAA audits a contractor’s financial and recordkeeping systems to make sure that taxpayer dollars are being spent responsibly.
As a contractor, understanding these audit services, including the regulatory standards used to assess system performance, is essential for success. This guide reviews a conventional roadmap to help businesses prepare for DCAA audits. However, a business’s individual circumstances can only be addressed by a CPA experienced with government contract audits.
1. Assemble Required Documents
The DCAA auditor will audit the business’s records to determine whether its labor, record-keeping, and accounting procedures fall within government guidelines. Documents that can be required in a DCAA audit include:
- Accounting ledgers
- Guidelines
- Written forms
- Computer databases
Note that this is not an exhaustive list. The DCAA auditor reserves the right to audit any records or evidence held by the business to separate direct and indirect costs, evaluate record completeness, verify pricing data, confirm cost projections, and more.
2. Guarantee Availability
To provide the required documents, including any additional evidence requested by the auditor, contractors must make their records available during the contract and for three years after the final payment has been made.
This is governed by the rules of the Federal Acquisition Regulation (FAR). Contractor records retention is also subject to the additional clauses or statutes of individual contracts. Contractors must make themselves aware of their contract’s specific statutes to make sure the requested records are available upon request.
3. Learn Exclusions to DCAA Requests
While the reach of the DCAA encompasses several complex government standards, including FAR and Cost Accounting Standards (CAS), contractors have the right to withhold certain information in the event of an audit.
Document analysis: Contractors are not required to disclose the methods of their data interpretation process or document creation procedure.- Employee interviews: Employee interviews, including onboarding interviews and performance reviews, can remain confidential.
- Office space: Contractors are not required to provide DCAA contractors with dedicated office space to conduct their business.
Despite these exclusions, many government contractors oblige DCAA auditors with these requests to form a better relationship with them. However, businesses should know their rights during a DCAA audit to avoid unnecessary strains on productivity and protect employee privacy.
4. Review the DCAM
The DCAM, or DCAA Contract Audit Manual, contains instructions that auditors follow to review contractors, and procedures for contractors to follow to comply with regulations. The DCAM includes the Generally Accepted Government Auditing Standards (GAGAS), used to review financial and performance audit procedures.
5. Document the Process
Contractors should track the records, documents, and reports being accessed, as well as the dates all documents were retrieved. Beginning with the entrance process, normally involving a conference with the auditor to discuss the review objectives and timeline, contractors should document all DCAA requests.
To make this easier, contractors should keep a single point of contact with the auditor to maintain a clear channel of communication and build a consistent relationship with the agency. Audit response time should also be recorded to assess the agency’s procedure and your team’s internal performance. Any written or digital questions and correspondence between the contractor and the agency should also be saved.
6. Authorize Exit Conference
Once the audit has been conducted, contractors should request an informal meeting with the audit supervisor to review their findings. This meeting, the “exit conference,” allows contractors to challenge the audit’s results, provided they have verifiable proof of the cause of the issue.
In most cases, contractors will comply with the auditor’s findings to preserve their relationship with the agency. However, the exit conference provides an opportunity for review and potential dispute if the contractor believes doing so is in their best interest.
7. Record Disagreements
Contract auditors can make mistakes, or a contractor’s team may refer them to the wrong documentation upon request. Regardless of the reason, audits can potentially misrepresent a contractor’s processes, which is why contractors should document their disagreements and review the evidence with both their supervisors and the agency’s representatives to resolve any issues.
After the audit has concluded, contractors can contact the Boards of Contract Appeals within 90 days to file a complaint.
Contact Diener & Associates to Prepare for DCAA Compliant Accounting
The audit process differs for each contractor depending on their workflow, industry regulations, and the agency’s objective for the audit. Assembling a roadmap helps verify a contractor’s obligations, document the process, and organize document requests as efficiently as possible.
Diener & Associates is a team of experienced CPAs focused on helping government contractors overcome common challenges with federal compliance. Our team of CPAs reviews contractors’ accounting, timekeeping, and legal processes, conducting mock internal audits to detect compliance gaps, and assisting supervisors in their understanding of relevant federal standards, such as the GAAP.
Schedule a consultation today to learn how the expert CPAs at Diener & Associates can help you overcome common compliance challenges, even in your first government audit.